2006 rings in incentives for energy saving

Published 10:00 pm, Friday, December 16, 2005

If the thought of rising energy bills has you rushing out to buy insulation, hold off until after Jan. 1, when the recently enacted Energy Tax Incentives Act of 2005 kicks in.

The act includes incentives to make your home more energy efficient and give solar a try. They come in the form of tax credits, reducing federal tax bills dollar for dollar. Unlike many federal programs, they are not phased out for higher incomes.

The most generous credits are available for those who add solar water, heat or power to their homes. It wasn't very long ago that installing virtually any kind of solar device was a labor of love without much economic value. But with the federal incentives -- combined in many places with utility and state incentives -- solar is looking like a much better deal.

The new energy law encourages taxpayers to claim a tax credit each year in both 2006 and 2007 for these expenses: 30 percent of the cost of solar water-heating equipment, up to a $2,000 maximum tax credit for each tax year; 30 percent of the cost of solar equipment that generates photovoltaic electricity, up to a $2,000 maximum tax credit for each tax year; and 30 percent of the cost of a fuel-cell power plant, up to a $500 maximum tax credit for installation in a taxpayer's principal residence. Unfortunately, this technology isn't yet available for practical use to residential consumers.

Solar equipment, particularly solar water heaters, is a lot more reasonably priced, easier to install and generally more practical than it's ever been.

While installing photovoltaic systems can be pricey with payback in the distant future, installing a solar water system can pay for itself quickly and continue to save a homeowner increasing amounts of money.

"I think that even without the tax credit, solar hot-water systems are economical. You'd almost be crazy not to get a solar hot-water heater right now -- especially with natural gas prices going up," says Noah Kaye, policy and communications coordinator for the Solar Energy Industries Association.

Solar hot-water systems rely on relatively simple and cheap technology to circulate water through panels that face the sun, supplementing, and in some cases replacing, conventional water-heating systems.

The most common type of solar thermal system involves copper pipes that wind back and forth through a flat plate collector, typically mounted on a roof. The heated water is collected in an auxiliary water tank, or it can be routed straight into the main water tank, where it is either heated further by conventional means or is ready for use at the spigot or in a radiant or radiator heating system.

Kaye estimates that a reliable system installed by a professional can cost as little as $3,500, with systems climbing to as much as $6,000 in cold climates where freezing is an issue. Once it's installed, the ongoing costs are near zero with only very occasional maintenance needed.

A much more extensive and expensive proposition would be to add a grid-tied solar-electric system to your home. This photovoltaic, or PV, system is made of a complete set of components for converting sunlight to electricity, storing that electricity and delivering it to its end use. The system could produce some or all of the electricity that your home requires. In addition, it can allow you to sell the excess back to your utility company.

Figuring out whether it makes economic sense for you can be done by showing your electric bills to a qualified solar installer who can do the calculations for you. Or you can try to estimate the return on the investment yourself using a calculator offered by BPSolar.

The price will depend on how much electricity you require, the amount of sunlight available to your home and how much money is available to you from state and utility rebates.